INTERNATIONAL BANKING AND FINANCIAL MARKETS
International Banking and Financial Markets
This page supplements my course entitled "International Banking and Financial Markets" delivered Autumn 2022 at RISEBA University. The course starts 21 September 2022 and is delivered online through Zoom. This page contains mainly PowerPoints and videos. I encourage students to visit other pages on this website as the information is useful.
Part One introduces the basic topics covered by this course. Coverage of international banking and financial markets is provided at a fundamental level. Students are encouraged to explore a specific topic in detail in the research paper.
N.B. This course is not a finance or investment strategy course in the sense. I will not teach "bond mathematics", options strategies, or investment portfolio management. Rather the course introduces students to the concepts that pervade banking and markets, including recent technological innovations.
The first PPT provides an overview of the course. The PPT outlines the topics to be covered, talks about the content, and discusses the method of assessment.
The second PPT covers the basics of banking and international commercial banking. A commercial bank is distinguished from other financial institutions in that it is licensed to accept customer "deposits". Banking comprises four functions as explained in the PPT, primarily financing and payments. Like other financial institutions, banks are "financial intermediaries". International commercial banks engage in cross-border financing, such as syndicated loans, project finance, foreign exchange, and trade finance.
The Third PPT covers Trade Finance. The latter is used to support international trade and relies upon what is called a Documentary Credit [DC]. The DC is used by importers/exporters to mitigate the risk of non-payment by the importer and non-delivery or non-conforming delivery of goods by the exporter. The PPT explains how the DC works. It also raises the question of blockchain-based trade finance, and the larger question of whether it is possible to eliminate banks, called disintermediation.
The Fourth PPT discusses International Investment Banking [IIB]. International Investment Banks provide long term equity or debt financing to companies and governments by underwriting securities. With exceptions, underwriting securities is heavily regulated and requires legal compliance in the jurisdiction where the securities are offered for sale. Private placement and Eurobonds are exempt from conventional registration and disclosure requirements. Since investment banks help entities issue securities, equity and debt, and select other financial instruments, are clarified.
The presentation ends with raising questions about sovereign debt sustainability. The short discussion is designed to encourage thinking and research projects.
The Fifth PPT explains the Society for Worldwide Interbank Financial telecommunication [S.W.I.F.T. or Swift], an organisation considered vital for international payments, especially in US dollars. SWIFT does not deal with funds per se, but with messages sent by banks to communicate with one another to effectuate international payments.
SWIFT is organised under Belgian law and is a limited liability company in the form of a cooperative company. The presentation looks at its corporate structure, members, corporate rules, and protocols. The presentation also explains how and why SWIFT cuts off access to country groups subject to economic sanctions.
The Sixth and Seventh PPTs provide an overview of financial markets: the foreign exchange market, the money market, the bond market, securitisation, the international fixed-income market, and the equity market. There are many more markets not covered in the material. Students are encouraged to consider the following issues: why do financial markets exist?, how do these markets affect individual and institutional behaviour?, what factors shape financial markets and the price of financial instruments?, and what are the principal purposes of markets for economic development?
Repurchase agreements [Repos] are instruments traded in the money markets. I explain these instruments in an article I published about the failure of Lehman Brothers.
Cross-border payments constitute a major friction in international financial services. The problem is exacerbated when the originator of the funds and the beneficiary of the funds have accounts at banks without a direct relationship thereby requiring the use of correspondent banks. The process is further complicated by clearing and settling the funds transfer through central banks of different countries. The problem reduces to myriad accounts held on different ledger systems.
After the 2008 financial crisis, FinTech companies started to offer solutions to the expensive, slow, and non-transparent cross-border payment services offered by traditional banks. None of these Fintech solutions, such as Wise and Revolut, fix the problem. However, Ripple may provide the global rail for payments, if the company settles its dispute with the SEC and begins operations. The article below studies cross-border payments and describes Ripple. I will discuss cross-border payments.
I developed a PPT for cross-border payments that ultimately raises the question of how Ripple, a technology company, claims it is has solved the "friction" in cross-border payments.
I provide a short video on forward contracts to supplement the lectures.